KKR: LPs bullish on fundraising despite fearful market

  • Firm focuses on 12th North America Fund
  • LPs not pulling back commitments despite market choppiness
  • KKR handles $815 mln financing package for Mill’s Fleet Farm

Kohlberg Kravis Roberts & Co said it’s not seeing LPs pull back from commitments to its private equity funds despite choppy financial markets, as it works to deploy its record dry powder during the current market downturn.

KKR & Co executive Scott Nuttall said the New York firm is in the fundraising market for its flagship KKR North America Fund XII LP. He didn’t provide a dollar target for the fund, but in the third quarter, officials at the firm said it’ll be larger than its predecessor, which drew in $9 billion in 2012. Media reports have projected the size of Fund XII at about $10 billion or more.

“The fundraising environment continues to be quite good,” said Nuttall, global head of capital and asset management for the firm. “Investors have a good amount of cash. We have not seen the market volatility impact investor behavior as of yet. So right now we’ve got a lot of good things coming to market at a time when people seem excited to put money to work.”

He didn’t reveal a specific fundraising target for all of KKR’s funds in 2016, but said the firm has averaged $15 billion to $20 billion a year recently. In 2016, the firm’s North America Fund XII “will be a big component” of its overall fundraising effort, Nuttall said.

The firm also drew in an additional $980 million during the fourth quarter for KKR Special Situations Fund II, the follow-up to the $2 billion debut fund raised in 2013. KKR also held closes on its first mezzanine fund, as well as its first European direct lending and European real estate funds. Nuttall declined to provide specific targets for any of the funds, but said KKR typically raises $500 million to $1 billion for its debut funds.

Despite bullish remarks on fundraising, KKR said it’s expecting current market volatility to continue for the near future, with leverage harder to get on deals.

“We are suffering now from a handful of negatives,” Nuttall said. “It was a concern about China and oil and now more recently there is much more anxiety about European banks. And I think there’s an overall concern about a lack of liquidity in the market. Those are the big four.”

KKR’s record $29 billion of dry powder means it’s well positioned to invest with fear in the markets, he said.

“[We’re] optimistic that this is going to be a really interesting deployment environment for us for at least the near term and potentially the medium-term,” he said.

Nuttall said the firm recently turned to its own capital markets team to raise $815 million in debt financing for its buyout of Mill’s Fleet Farm, a family-owned, value-based retailer based in the Midwest.

“We could not get a reasonable financing proposal,” Nuttall said.

Since then, KKR has gotten calls from other GPs in similar situations. KKR is working as a 50-50 partner on syndicating a similar sized debt package with another private equity firm, Nuttall said. He didn’t provide any further details.

Overall, KKR’s fourth-quarter earnings of 8 cents a share fell short of the analyst forecast of 27.2 cents according to estimates from Thomson Reuters. Its economic net income increased by 53 percent to $70.5 million, after taxes. The firm grappled with unrealized losses in its hedge fund and credit investments. But its private equity arm logged unrealized performance income of $344.7 million, up by 48 percent from the year-ago period.

Action Item: KKR Q4 investor update presentation, http://bit.ly/1PoVJ2y

Photo courtesy of Reuters